a. If carrying costs are $2 per year for each stone, find the order quantity that will minimize total annual cost.

Finance Basics

A jewelry firm buys semiprecious stones to make bracelets and rings. The supplier quotes a price of $8 per stone for quantities of 600 stones or more, $9 per stone for orders of 400 to 599 stones, and $10 for lesser quantities. The jewelry firm operates 200days per year. Usage rate is 25 stones per day and ordering costs are $48.

a. If carrying costs are $2 per year for each stone, find the order quantity that will minimize total annual cost.

b. If annual carrying costs are 30 percent of unit cost, what is the optimal order size?

c. If lead time is six working days, at what point should the company reorder?

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